Estimating the effects of legalizing drug e-commerce

Abstract

With the technological development the e-commerce channel began to spread to all sectors of the economy. In 2020 with the introduction of sanitary and epidemiological restrictions because of COVID-19 pandemic, many countries lifted the ban of drug e-commerce. Such changes are interesting from the point of view of health economics, and the opening of this sales channel significantly reduces transaction costs and increases the physical availability of drugs, especially in regions with low population density. The article attempts to evaluate the effects of legalization of online sales of drugs on price level and the degree of market concentration (the concentration of the 5 largest companies is used as a proxy), and also uses new methods to estimate the effects of legalizing e-commerce on drug markets. High rates of industry and drug market concentration can lead to a noticeable decrease in the availability of goods. Legalizing e-commerce can be seen as a way to reduce market concentration by facilitating market entry for small firms. The effects of lifting the ban on remote drug sales are estimated using regression analysis on panel data, cross-country matching, and synthetic control. Empirical estimates provide an overall picture of the effects of legalizing online drug sales. After allowing remote drug sales market concentration decreases, indicating a reduction in information asymmetry and switching costs. This effect is particularly important for countries with a high proportion of pensioners, for whom the switching costs are noticeably higher ceteris paribus. Allowing distance trade, due to reducing information asymmetry, drug pricing also slows down, that is, in addition to increasing physical accessibility, opening this channel also increases economic accessibility.